[Begin E-1]
Southern California Edison Company is pleased to submit these
comments on the Mitigated Negative Declaration ("MND")
and the Initial Study ("IS") issued by the Commission
on August 24, 1997, regarding Edison's application to sell twelve
powerplants. As we have discussed with you, the mitigation
measures identified in the MND are acceptable to Edison and
Edison will modify its divestiture of the powerplants as
described in those mitigation measures. (As discussed below,
however, one of the mitigation measures has already been
satisfied through a regulatory change and therefore no longer
needs to be included). [End E-1][Begin E-2]In submitting these
comments, however, Edison wishes to emphasize that our agreement
on mitigation measures does not constitute an agreement with the
Commission's threshold legal conclusion, reflected in the IS and
MND, that Edison's sale and transfer of the plants is a
"project" subject to CEQA. Also, we wish to reiterate
that our agreement with the MND in no way implies that we concur
with or endorse all of the economic analysis or forecasts
accompanying the IS, although we are pleased to note that the IS
now correctly concludes that any prediction of increase in
generation due to divestiture is too speculative to form the
basis for requiring an EIR or mitigation measures addressing
increased generation.[End E-2]

[Begin E-3]
In considering and responding to comments received during this
comment period and preparing its CEQA findings, we request that
the Commission consider the information contained in our PEA and
comments on the Draft Initial Study and we hereby incorporate
those prior documents by reference.[End E-3]

Finally, in these
comments we also provide updated information regarding the
lot-line adjustment applications at several facilities that were
pending when the IS and MND were being prepared. This updated
information does not alter or affect any of the conclusions in
the IS or MND, but we provide it to you so that the public has
the most complete information available regarding the
divestiture.

The MND includes a
mitigation measure intended to ensure that the Cool Water
Generating Station would continue to be subject to NOx emission
limits in Mojave Desert Air Quality Management District
("MDAQMD") Rule 1158 even if that rule were not revised
by the time of the sale of the plant to clearly apply to
non-utilities. (MND at page 3.) The governing board of the MDAQMD
adopted appropriate revisions to Rule 1158 on August 25, 1997,
clarifying that the plant remains subject to the rule regardless
of whether it is owned by a utility. (A copy of the revised rule
is attached hereto as Attachment A.) Accordingly, this mitigation
measure can and should be removed from the MND.

2. Because the
Commission lacks legal discretion to completely prohibit the
sale and transfer of the plants, such sale and transfer
itself is not a "project" subject to CEQA.

As you know, it
consistently has been Edison's position that the sale and
transfer of ownership of the powerplants is not subject to CEQA,
for several reasons. First, as discussed in the Proponent's
Environmental Assessment ("PEA") filed with Edison's
Divestiture Application, the sale and transfer of the facilities
will not cause any direct, or reasonably foreseeable indirect,
physical changes to the environment, and therefore does not meet
the CEQA definition of "project." (Pub. Res. Code ' 21065) In addition, as also mentioned in
the PEA, even if the divestiture of the plants were a
"project" under CEQA, it would fall within the
categorical exemption from CEQA for existing facilities. (14
C.C.R. ' 15301)[End E-5]

[Begin E-6]
Moreover, in addition to the other bases for Edison's position,
Edison has pointed out in response to the Commission's Draft
Initial Study ("DIS") (specifically, the DIS's baseline
scenario in which Edison is assumed to continue to own all of the
plants permanently or indefinitely), that the Commission lacks
legal discretion to completely prohibit the sale and transfer of
the plants. (See, e.g. letter dated July 21, 1997, from Sumner J.
Koch to Bruce Kaneshiro and Martha Sullivan [copy attached hereto
as Attachment B] at pages 2-3.) Even if the plants were not sold
and transferred via the pending divestiture application, Edison and
the Commission still would be required by law to market-value
the plants no later than the end of 2001 (Pub. Util. Code ' 367), and immediately thereafter the
plants are no longer subject to Commission regulation and may be
sold without Commission approval (Pub. Util. Code ' 377), as the IS acknowledges. (IS at page
3.4.) Via one route or another, then, Edison is clearly
authorized by law to sell the plants, and the Commission,
although it is authorized and obligated to ensure that a sale or
alternative market-valuation process meets certain specified
requirements, lacks discretion to completely bar the sale. The
sale and transfer itself, not being subject to Commission
discretionary authority, is not a project subject to CEQA.[End E-6]

[Begin E-7]
Edison's agrees to the mitigation measures identified in the MND
in the interest of advancing the divestiture proceeding without
unnecessary delay, and such agreement does not constitute an
acknowledgment that the sale and transfer of the plants is
subject to CEQA.[End E-7]

3. Edison's
agreement with the MND does not imply agreement with all of
the economic forecasts or analysis accompanying the IS.

Edison's acceptance of
the mitigation measures identified in the MND is not to be
construed as agreement with all of the conclusions or rationale
contained in the "System Economic Analysis"
accompanying the IS (IS Attachment C). Edison's oral and written
comments to the Commission on the DIS included extensive comments
on the earlier version of this economic analysis, some of which
remain applicable to the IS's revised economic analysis, and we
will not repeat those comments here. We note however that the
revised analysis, unlike the earlier version, cites the example
of plants in the England/Wales market ("E/W") that are
owned by entities owning no other generation as indicating a
tendency for such singly-owned plants to operate at higher
capacity factors than portfolio plants. This example is of little
or no application to the California market, however, since the
facts are so distinct. The singly-owned plants in E/W are new
merchant plants that are relatively low-cost and infra-marginal
units. In contrast the owners of the large portfolios typically
own the older generation, built well before restructuring, which
are more costly to operate. There is simply no reason to conclude
from this example that a marginal plant, such as the plants
included in this divestiture application, would be operated in
the same manner as a new infra-marginal plant in E/W. Moreover,
some of the new singly-owned plants in E/W are affiliated with
distribution utilities and sell output to them under long-term
contracts; the UDCs in California cannot enter into similar
contracts for four years.[End E-8]

As you know, Edison has
proposed to retain certain land at each of the plant sites, and
at 11 of the 12 sites (all except Ellwood) that has entailed
adjustment to the pre-existing lot lines. At the time the IS was
issued Edison's lot line adjustment applications were still
pending at three sites. Below is updated and corrected
information regarding those sites.

Highgrove:
The Highgrove lot line adjustment applied for by Edison has
been approved. Because the IS mislabled the two Highgrove
property maps (i.e., IS Figure 2.14(a), which is captioned
"without lot line adjustment," actually shows the
site with the lot line adjustment) the property will
be divided as shown in Figure 2.14(a).

Huntington Beach:
The map previously provided by Edison and included in the
IS, which was intended to show the site without adjustment
of the lot lines, was incorrect and a corrected version on
that map is attached hereto as Attachment C-1. In addition,
however, Edison now expects that its lot line adjustment
application may be approved prior to sale of the plant, and
the corresponding map of the site with lot line
adjustment is attached hereto at Attachment C-2.

Redondo: The
Redondo lot line adjustment application remains pending at
this time. Attached hereto as Attachment D is a slightly
revised, corrected version of the map showing the site without
the lot line adjustment. This map more accurately
reflects the proposed divestiture transaction, because while
Edison does not intend to sell the strip along the east edge
of the site in the near future, it is being sold separately
from the generating station and therefore is
"retained" in the sense of not being included in
the pending Divestiture Application. This separate sale is
along existing lot lines and requires no lot line adjustment.

This letter is to confirm and clarify Edison's
position regarding the correct "baseline" that should
be used in the Commission's CEQA analysis of our Divestiture
Application - that is to say, the correct description of the
conditions that would exist if Edison's pending application is
not approved by the Commission. As you know, in our June 30th
oral comments and our July 3rd written comments on the Draft
Initial Study (DIS), as well as in our recent conversations with
you, we have stated that the DIS's baseline, which rests on an
assumption of continued Edison ownership of the twelve gas-fired
generating facilities, is incorrect.

From our recent discussions we understand your
concern to be that, without an unqualified commitment from Edison
that even if our pending divestiture application is rejected we
will nevertheless dispose of some or all of these facilities by
other avenues, you may be required for purposes of a CEQA initial
study to assume that Edison continues to own all of the
facilities. Your concern seems to be that unless there is
hard-and-fast "proof" to the contrary, such as a
binding Edison commitment, CEQA possibly requires you to make the
"environmentally worst-case" assumption.

Edison strongly believes that this approach is
incorrect and unfounded under CEQA for at least two reasons,
which this letter will discuss in more detail below:

(1) Because the Commission lacks the
discretion, under AB 1890, to completely bar the sale and
transfer of these plants, the sale and transfer itself is not
the "project" that is before the Commission for
environmental review under CEQA. Rather, the Commission has
discretionary authority only over the particular means and
methods of divestiture or other valuation proposed by Edison,
and accordingly the Commission's inquiry under CEQA is
limited to assessing the potential environmental impacts, if
any, only of those particular aspects of the application.

(2) Even assuming, for the sake of
argument, that the Commission has the authority under CEQA to
analyze the potential impacts of the sale itself, the
analysis still must be based on reasonable assumptions. There
is no basis whatsoever for assuming that Edison would retain
ownership of all or most if its gas-fired generation in the
baseline case, and there is every reason to assume the
contrary.

Edison May Transfer the Plants to
New Owners as a Consequence of Restructuring,
Mandated by AB 1890, and Not Only as a
Consequence of This Divestiture Application: Therefore
the Potential Impacts of Such Transfers Are Not Properly
the Subject of this CEQA Inquiry.

Before addressing further your inquiry
regarding Edison's divestiture intentions if the pending
application is not approved, I want to reiterate our position
that such intentions of Edison are fundamentally irrelevant to
the inquiry that is properly before the Commission. While this
point really goes to correctly defining the boundaries of the
CEQA "project" that is before the Commission, rather
than just the baseline, the point deserves discussion here since
the DIS incorrectly frames the project in a way that leads it to
misstate the baseline.

AB 1890, as you know, mandates that all of the
subject facilities are to be market-valued no later than December
31, 2001 (Public Utilities Code Section 367(b)). AB 1890 further
mandates that upon market-valuation the facilities cease to be
subject to Commission regulatory authority (Section 377),
including the Commission's authority under Section 851 over the
sale of utility property. No later than the end of 2001,
therefore, Edison will be free to sell and transfer the plants
without any Commission review. (Indeed, under Section 377 Edison
would need Commission approval to retain any of these
plants within the distribution utility company.)

Because the Commission does not have authority
to prevent Edison from selling and transferring ownership the
plants, the actual sale and transfer itself is not the
"project" that is before the Commission for
environmental review. Accordingly any potential impacts from such
sale and transfer are not appropriately the subject of this CEQA
analysis. Assuming the Edison's divestiture proposal is subject
to CEQA at all, it is subject to it only to the extent of the
Commission's discretionary authority. The Commission may examine
the potential environmental impacts of the various particular
aspects of Edison's divestiture proposal that are before the
commission for discretionary approval, but not of those aspects
that do not require Commission approval.

(At most, it might be argued that the
"project" subject to Commission review includes the
first four years of divested operations, up until December 2001.
Even according to the DIS's own analysis, which engages in
numerous speculative and unreasonable assumptions to find impacts
from divestiture, few if any impacts of divestiture are expected
during this initial transition period.)

To illustrate, in the closely analogous case of
City of Ukiah v. County of Mendocino, 196 Cal.App.3d 47
(1987), a company that already possessed vested rights to conduct
gravel mining at a site sought approval of its mining reclamation
plan, so that it could proceed with the mining. The court upheld
the lead agency's determination that there were no potentially
significant impacts, on the basis that the only matter presented
for the agency's approval, and thus for environmental review, was
the reclamation plan itself, and not the overall mining
activities. Similarly, in Black Property Owners Association v.
City of Berkeley, 22 Cal.App.4th 974 (1994), in which the
lead agency was updating its City Housing Element, the court held
that the city needed to assess the potential impacts only of the
update itself. The court rejected the argument that the city had
to undertake an EIR and analyze the impacts of related city
ordinances and policies that were already in effect.

As these cases confirm, the scope of the
Commission's authority under CEQA stems entirely from its
underlying discretionary authority to grant or withhold approval
of a project. The Commission does not have authority to review
the potential impacts of an action -- in this case, the actual
sale and transfer of the powerplants -- that it is mandated by
law to permit.

Based on the Evidence Before the
Commission, including Edison Filings, the Reasonable and
Correct Baseline Assumption is That Edison Would Sell or
Otherwise Dispose of its Gas-Fired Generation.

Edison believes that the above point regarding
the correct description of the CEQA "project" is
completely dispositive of this question. However we also want to
respond directly to your concern that, if the sale of the plants
is properly the subject of the Commission's CEQA review, the
correct baseline assumption for the Commission to make is that no
divestiture of plants will occur. We believe that the Commission
has before it ample commitment by Edison that we will dispose of
these plants -- and, importantly, the Commission has no evidence
to the contrary -- such that the DIS's baseline assumption of no
plant divestiture is unreasonable and therefore incorrect under
CEQA.

As you know, even before the submittal of our
divestiture application, Edison filed proposals at the Commission
and at FERC to dispose of at least half of our gas-fired
generation in order to assuage market-power concerns. Nothing to
date causes Edison to retract or reconsider the commitments we
stated in those filings; on the contrary, as you are aware, we
have recently (May 1997) made a subsequent filing at FERC
committing ourselves to certain market-power mitigation measures
if the commencement of the competitive market precedes
divestiture, and those measures further motivate us to dispose
promptly of gas-fired generation. And finally, of course, it
should be evident to everyone that Edison is pressing for the
approval and completion as soon as reasonably possible of its
pending divestiture proposal. Against this backdrop we find the
DIS's baseline assumption that Edison would retain its gas-fired
generation to be completely without basis.

The question of how Edison would proceed if our
current proposal to sell the plants via auction is rejected, and
we have to pursue other means of valuing of the plants,
necessarily entails a high degree of speculation. Edison (like
any other entity) cannot offer absolutely unqualified commitments
about future hypothetical events -- especially about a
hypothetical event the presupposes the failure of a planned
course of action that many different parties have counted on. (A
wide variety of stakeholders have emphasized that they prefer
auction sales as the means of market-value generation, and any
alternative means may be contentious and therefore especially
unpredictable.) What Edison can confirm, and does confirm, is
that based upon all the facts currently available to us we intend
and expect to fully dispose of (i.e., to transfer to non-Edison
ownership) all of our gas-fired generation capacity.

Obviously it is possible to engage in endless
speculation and counterspeculation about what might occur in
various conceivable circumstances. CEQA recognizes, however, that
such speculation adds nothing to informed decisionmaking, and
consequently does not require or even permit the environmental
review to be based upon such speculation. All existing factual
evidence before the Commission is that Edison intends to divest
its gas-fired generation, and there is no basis for any
assumption to the contrary. The DIS's baseline assumption of
continued Edison ownership of the gas-fired plants is therefore
incorrect under CEQA.

In this connection I also want to restate
briefly a point that we explain at greater length in our comments
on the DIS, which is that even if Edison did retain all of the
plants, it is clear that FERC would impose and enforce
market-power mitigation measures that would effectively prevent
Edison from exerting market power and would effectively cause the
twelve commonly-owned plants to operate as if in competition with
each other. The DIS's assumption that FERC would not fulfill its
responsibility and authority is speculation ungrounded on any
facts, and is not proper under CEQA.

Please do not hesitate to call us if you wish
to discuss the foregoing points further, or if you have any other
questions that we may be of assistance in answering.